Fraud

Six out of every 10 businesses are experiencing the same or higher levels of losses to online fraud compared with a year ago, according to “The 2018 Global Fraud and Identity Report” from Experian. Fraud was cited as a growing concern by 72 percent of businesses that participated in the study. Bankrupt companies are also three times more likely to be cited for fraud by U.S. regulators, according to a study from Deloitte Financial Advisory Services LLP. That study indicated companies that experience fraud are much more likely than those that do not to land in Bankruptcy Court.

Misstatements and omissions of significant information could be the result of either fraud or incompetence. Unfortunately, it is often difficult to tell the difference.

Incompetence is ineptitude and lack of ability, while fraud is intentional deception for financial or personal gain. Knowing which has occurred is important because there are paths toward recovering what was lost when fraud has occurred. Two similar situations in which retail companies experienced significant inventory shrinkage show the difficulty in distinguishing between fraud and incompetence.

The typical response of a victim of fraud is to wage a full-scale attack on the perpetrator—report them to the authorities and seek to recover the maximum amount of damages without regard to the harm inflicted on the bad actor. However, this standard playbook would be counterproductive when a fraud is perpetrated by a franchisee on a franchisor or the public, and it is the franchisor seeking relief.

The public pursuit of legal remedies in such a scenario would put the spotlight on the party that the franchisor entrusted with its brand and reputation. For this reason, franchisors...

The employment-based fifth preference category (EB-5) visa program was initially created by the Immigration Act of 1990 for the express purpose of creating new jobs for U.S. workers and boosting the U.S. economy via an influx of new foreign capital. The program provides a method by which wealthy immigrant investors can achieve lawful U.S. permanent resident status as green card holders by investing in projects that create jobs for U.S. workers.

Over the past five years, EB-5 investments, which provide access to substantial sources of foreign capital to fund various development...

The Supreme Court of Canada recently found two banks liable in conversion for a $5.5 million check fraud carried out by a former employee of a major pharmaceutical company. The decision stands as the court’s most recent consideration of the “fictitious or non-existent” payee defense to the tort of conversion under the Bills of Exchange Act.

The decision is important for its conclusion as to which innocent party bears the risk of loss from a fraudulent check cashing scheme in situations in which both the drawer of the check and the collecting bank are victims to the fraud.

Unfortunately, theft from charitable organizations is neither rare nor insignificant. The Internal Revenue Service, which began collecting diversion data in 2008 from the larger nonprofits that are registered with the agency, reported that 285 diversions involving total losses of more than $170 million were reported for 2009.1 A separate study found that nonprofit organizations are the victims in one-sixth of all major embezzlements, placing second only to the financial services industry.2

Fraudulent conveyance is a legal concept involving the transfer of property for less than equivalent value to defeat a creditor’s ability to collect from its debtor. Whether a fraudulent conveyance has occurred is highly dependent on the facts and circumstances of the case.

For example, if someone sold his $500,000 house to his daughter for $100,000, he might be considered generous or senile, but not necessarily fraudulent. However, if the person perfected that same transaction right after losing a million-dollar lawsuit, then that transaction most likely would be considered a...

The Panama Papers continue to shine a new light on the hidden world of money laundering, providing important details on how overseas shell corporations can be used to make dirty money look clean. Each new revelation gives federal agencies more ammunition in their fight against this brand of financial fraud.

Armed with these new disclosures on money laundering, U.S. companies should be looking beyond the headlines. They should be digging into their own operations, focusing on areas that might trigger an investigation by any of a half-dozen different federal agencies, including the...

Distress visits everyone. In business, distress may lead to a spiral of disadvantageous transactions, litigation, arbitration, a visit to Bankruptcy Court, and even less pleasant adversity. Even with best intentions and extraordinary efforts, following the usual pathways can limit options. That eventually may lead to the cliff’s edge.

An emergent option offers an alternative to that outcome in appropriate circumstances. Referred to generically as litigation finance, many are aware of this potential funding source. Its adaptability to creative applications, however, may be less...

The fundamental principle that assets and liabilities of a company are generally separate and apart from those of its owners is something that most first-year law students, as well as most business owners, know.1 Indeed, the insulation that the rule provides owners from potential liability of their business is the very reason many business owners form a legal entity. It is also why so many companies consist of more than one legal entity, with parent companies owning subsidiaries and those subsidiaries owning subsidiaries of their own.